File It in a Plastic Bag
Introduction:
File It in a Plastic Bag
In the early 1980s, my wife and I became complex in a home firm and have pursed further streams of income via a estimate of home businesses ever since. Some were network marketing organizations as well as other home-based businesses along with newspaper and Internet advertising. We ready packaged and mailed newsletters, facts and sample packets and fliers. In all these years, I studied and tried out many ways to track and narrative expenses and income as well as becoming familiar with the valuable forms required for filing income tax returns. during this period, I also added a Masters of firm management degree to my engineering degrees. Part of this Masters' policy included two accounting courses.
The home firm entrepreneur will also want to track income, cash flow and may even want to form a balance sheet that keeps track of the assets and liabilities linked with the business. Forms and processes for these accounting aspects are beyond the scope of this article. I do supply an example of Capital Items Depreciation tracking form that I use in our home business.
I want to make it clear from the outset that I am not a expert tax consultant; however, I have thirty-plus years in corporate management and retired as a Senior consultant from a world-class consulting company. I have applied the skills acquired during these firm experiences in our home businesses. My goal in this publication is to share some insights and actual practical processes that will make your home firm more effective, especially in the area of tracking and reporting expenses.
Some might think that they don't need to spend any time tracking their home firm expenses since at the end of the year they take the shoe box stuffed with firm receipts to their accountant and let him/her outline it all out. This is actually a potential coming to narrative keeping; however, if you pay your accountant by the hour or even by the job, it is quite potential that your accounting costs may be considerably less if you use the straightforward and productive law described below. Also, you might even have a happier accountant!
This is the first of two articles and it addresses Preparation. The next narrative s will discuss the Implementation tools and strategies that I use. It is actually prominent that one takes the valuable actions to prepare, and after adequate preparation, move transmit with actual implementation. I will also supply examples of the actual forms that I use so you can see how they will work for your home business. Let's get started so you can learn how to "File it in a Plastic Bag!"
Preparation:
Legal Status Of Your Business:
There are many publications available on the Internet and in your local library that can help you to rule what legal form (entity) you would want to take for your home business. Our home firm was treated as a "Sole Proprietorship" for years, but in 1996, we decided to have our firm entity operate as an "S Corporation". Some "experts" have recommend that when a home firm achieves 00 per month in income, it is time to address the legal status of one's business.
The main reason we chose to consolidate was for my wife to become an laborer of the corporation. Her wage would become an price of the firm and her social safety deductions would be shared equally with our corporation. The downside of having our small home firm operate as an S corporation is the filing of further federal and state income tax forms and payments. The annual income from an S corporation is reported along with other personal income on the Federal 1040 form, and this additive income (or loss) is also reflected on State income tax forms.
If one wanted to incorporate, it is very easy to do this with reputable on-line clubs such as http://www.legalzoom.com. The http://www.irs.gov website has a list of commonly filed income tax forms, and you can find similar lists for your state forms.
Tracking Expenses:
For years, I tried assorted ways of tracking the expenses linked with running our home business. First of all, I had to best understand legitimate reportable firm expenses. Then I reviewed our own firm expenses and investigated tracking methods and forms that would apply to a home business. Then, once I best understood these expenses, I searched for the "perfect" tool for posting and tracking firm expenses. I found that for our small home business, expensive income & price tracking software programs didn't add much value to the enterprise. Others might argue that a software program is the only way to operate and I say to them, "Go for it, and use what works the best for you!" With this in mind, I am in no position to recommend any small firm software to be used for your home business. I Am in position to supply you copies of the paper forms and narrative of the procedures that I use to actually keep track of our expenses and tax filings. These worksheets are in such a format that I can actually transfer facts from them to income tax forms. (I download Federal and State income tax forms in the Adobe format and enter our facts when it is tax preparing time. Then, I submit our forms in a paper format after production copies for our files.)
One can study all of the potential expenses that might be tax deductible and select to consist of these on a tax form. However, the only yardstick I use to rule if an price is a inexpensive home firm tax deductible entry is the "Eyeball-to-Eyeball Auditor Test". I have studied assorted government produced income tax publications as well a stack of income tax preparing guidebooks produced by "experts". From these studies, I have listed the assorted price categories that I think apply to a home business. As I look at each price category, and each of our own firm expenses posted, I ask myself this question: "If I had to sit over the table in a meeting with an Irs auditor, could I actually justify the nature of this price and why it was linked with our home business?" If the riposte is "yes", then that price item is posted. If the riposte is "no" or there is any grey area applied to the reasoning, I don't post it. Others may want to push the envelope, but I don't operate our firm in this manner. The choice is for each of us to make.
Simple Procedures Will Make A Difference:
I learned as a Senior consultant that when analyzing an enterprise; be it a Fortune 100 firm or a one someone home business, the focus of attentiveness is on three major areas: people, process and technology. For your home business, You are the "people" part of this analysis. Your attitude and dedication to production your home firm victorious are valuable success factors.
Likewise, you could be the most dedicated entrepreneur on the planet and palpate frustration in your home firm due to poor processes and/or inadequate supporting technology. Even with great processes in place, supported by productive technology, the entrepreneur must dedicate time, effort, study and studying to the enterprise.
The tracking of your home firm income and expenses will be much easier if you:
Save all of Your Receipts
The one rule that All should agree on is to Document all of your expenses, and the best documentation of an price is a receipt or a paid invoice! Get in the habit of recovery all of your receipts and posting these receipts as soon as reasonably possible. (The same policy should apply to the tracking of your firm miles incurred while using your personal automobile.) Keep the receipts in a base place. I will supply you a very easy, low-tech policy for holding and tracking your expenses.
Set up a detach firm Bank Account
All major firm purchases should be paid for out of a detach bank inventory and/or a detach fee card. We have a detach firm checking inventory that we use to write checks for inevitable home firm expenses. Our firm inventory doesn't pay any interest so we keep just adequate money in it to cover monthly expenses. The net behalf we make from our home firm is deposited into an interest paying savings account. We also have a detach Visa card that we use solely for firm expenses. When the Visa bill arrives, we pay for these charges by a check from our firm banking account. The monthly check postings and fee card bill are excellent documents for cross checks with existing receipts.
Set up a detach fee Card
As I mentioned above, we have a detach Visa card that we use for specific firm expenses. For example, since we use one of our vehicles primarily for firm activities, we use the firm Visa card for gasoline purchases as well as tire and maintenance expenses. (When I perfect our income tax forms, I reason the total firm miles compared to the total miles the vehicle was driven during the year, and this percentage is applied to all vehicle expenses. More on this in the specific price type discussion.)
Dedicate a Time to Post Your Expenses
All of us have a full busy life, and if you have a full time job in increasing to your home business, it is very easy to find best things to do with your spare time than posting firm expenses in a log. However, if posting expenses is a drag, then I will ask you, "Why did you get into a home firm in the first place?" Many home businesses fail because the new entrepreneur doesn't actually treat the exertion as a business. If part of your regular job includes the posting of your groups' firm expenses weekly, you would set up a specific time to perfect the task and the task would probably be done in a ability and productive manner. In my supervisory jobs, I was either a "reviewer" or "approver" of firm expenses, and the firm had specific rules for which expenses required receipts. Their rules were primarily based on Irs rules. For example, all firm meals over .00 had to have a receipt. On the receipt or a detach piece of paper, the purpose of the meal and names (and titles) of the meal participants were required. Also, as a reviewer or approver, I had to dedicate time to process the vouchers and bills or I would have some unhappy employees and/or suppliers! As an laborer of a company, I had to document my trip expenses and submit an price form and receipts in a timely manner. As an entrepreneur, you have to take holding track of firm expenses seriously.
To this day, my wife or I supply adequate documentation on every firm meal receipt. Also, I recommend that you post your home firm expenses at least once a week and have this task as a high priority. Posting home firm income and expenses should not be the last thing you do in your busy day's activities. You will need some brain activity to do this task, and if it is done in a tired, distracted or angry state of mind, errors will occur creating extra work at some later time. Your home firm may be so small at the starting that posting expenses bi-weekly or monthly will work; however, since you want your firm to be victorious and grow, getting in the habit of posting expenses on a weekly basis will eliminate a maybe painful transition as your firm becomes more successful.
Summary:
The next narrative will discuss the Implementation part of this straightforward procedure. You will learn about the use of five forms and the straightforward filing law for receipts has worked well for our home businesses. The forms supply a clear narrative as well as tools for analysis of the profitability of the business. Best of all, the receipts and forms are filed in a plastic bag!
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